Adele Ferguson is one of Australia’s most-awarded journalists, receiving eight Walkley awards including a Gold Walkley for her joint Fairfax Media and Four Corners Programme, Banking Bad. She has also won a Logie and was awarded an AM in 2019 for services to journalism. Her reports were influential in the calling of the Royal Commission into Financial Services, and her new book, Banking Bad, tells the story of “power imbalance, toxic culture and cover-ups”.
GH: Is investigative journalism almost like a calling that comes with its own sacrifices?
AF: I suppose it is in a way although that sounds a bit corny but it's certainly not a nine-to-five job. It's something that is always with you. You're always taking calls, listening to people, looking for things. So yes, it is a bit of a calling.
GH: Including circumstances where you've come under some personal attack?
AF: Yes, when you’re up against big corporations, whether it's banks or franchise organisations or whatever, you are bound to get retaliation. Sometimes it can be a bit dirty with smear campaigns or threats of advertising being pulled. They try to disparage what you've written and undermine the whistleblowers or the victims, all those sorts of things happen.
GH: And in the media industry, which has been under a financial strain for a long time, pulling advertising is a big issue, right?
AF: Yes, it can really hurt when it's millions of dollars and jobs are on the line, but my organisations have continued to back the stories.
GH: Your book is not just about the Royal Commission as it also gives the background on how banking reached the current point. There’s the history of FoFA and the impact of various CEOs and executives at CBA and other banks. While the banks have paid heavily through remediation, do you feel there are individuals who've escaped lightly?
AF: Yes. Even with the Royal Commission, there were a number of executives who caused a lot of damage but had already left and they were never called by Hayne. It was the same as when I did the first Commonwealth Bank financial planning scandal story which came out in June 2013. Some individuals were culpable but they had moved on. Some were in really good positions in other institutions but they were never called to account by anyone.
GH: One of the uncomfortable sides of the Royal Commission was that relatively junior executives, such as Nicole Smith, we're beaten up day after day when she clearly felt she was just following instructions and doing her job. Do you think the Royal Commission targeted that sort of person too much?
AF: Yes, the Royal Commission allowed the institutions to choose who they wanted to put up as a witness. So the institutions that put up the wrong people. At one stage, Kenneth Hayne or Rowena Orr said something like, “Why are you here? You are so inexperienced, you've only been there a few months.” The witness couldn't answer any of the questions. That was a problem. The Commission should have called the people they needed, including some who had already left.
GH: You're widely credited for the stories that led to the Royal Commission. Is there one that stands out in your mind that most shocked you?
AF: The life insurance scandal at CommInsure. It was about sick and dying people. It really had a much bigger impact. I know many of the stories are terrible, such as the devastating toll of financial planning on a lot of people. But when you're seeing people who are terminally ill being knocked back for payments based on some spurious legal definition, that was really confronting.
GH: In your book, you describe how a CBA executive, Peter Beck, said he was shocked that relatively small amounts for medical needs were regularly referred to legal department.
AF: Yes, that really shocked me too. I remember a case, Noel Stevens was a scaffolder who had virtually no money to his name, maybe $10,000. He didn't own a home, he was renting. He got a phone call from a teller at Commonwealth Bank trying to cross sell. They saw he didn't have anything except a Westpac life insurance policy. So the teller referred him to a financial planner and they swapped him out of the Westpac life insurance policy into CommInsure, and said it was better, etc.
A few months later, he was diagnosed with pancreatic cancer and his claim was knocked back. He ended up fighting although he had only six months to live. He won the case and a few days later, he died. And the bank then fought it again and went to appeal. This was over about $300,000, and they even lost the appeal. It cost them about $500,000 in legal fees over a $300,000 claim that they had to pay anyway.
They go after little claims and they go hard because most people just give up.
GH: Can I put another side to you. When I was at Colonial First State before I left in 2012, which was relatively early in the remediation process, we felt that among the legitimate claims were people who saw an opportunity for ambit claims. They lost money during the GFC and this was a chance to recover it.
Do you accept that in this entire process, there are investors, the clients, who knew exactly what they were doing and now they're being remediated?
AF: No question, of course, there are always chancers who try to exploit something, which is a real shame, because it tends to sully what happened to people who were genuinely ripped off or put into inappropriate products. I get emails every day from people. Some claim forgery or fraud or doctoring of this or that document, but when I look at the claims, they just don't stack up.
Someone sent me an SMS recently saying, “Will you weave your magic?”
GH: Okay, they're trying to get you to become part of their lobbying.
AF: That's right. Or they'll copy me in emails to a bank CEO thinking that's going to do something. So yes, it certainly happens, I'm very much aware of it.
GH: While I was watching the Royal Commission, I felt frustrated that some senior bankers were simply answering yes or no and avoiding any explanations. I've subsequently talked to a witness who was told by his QC to say as little as possible. Do you think bank executives didn't do enough to explain their actions and justify better what the banks had done?
AF: It changed during the Royal Commission. The turning point was with AMP when Jack Regan got up. He essentially said AMP had lied 20 times. After that point, the QCs trained executives to be a lot more careful with what they were saying. It became yes or no and it didn't have a good impact.
GH: Yes. I felt as someone with a banking background, they should have explained better why they made certain decisions, but they were not prepared to.
AF: That's right. They were told to protect the institution and don't give anything away. They'll trick you. They'll do whatever. People were too careful.
GH: Most Australians, particularly as they approach retirement, need financial advice. But we now have thousands of advisers leaving the industry and the banks stepping back from advice. And most people are not prepared to pay enough for financial advice. Have you formed a view on how financial advice might be made available to the masses, other than the high net worths who will pay for it?
AF: I think financial advice is so important. People need good financial advisers but the industry needs to be professionalised. There were too many people that just did a two-week course. And then their remuneration relied heavily on commissions. Maybe advice should be a tax deduction to make it available to more people.
GH: Would you like to see a different business model that allows the banks to stay in financial advice, because that's still the place where people go for financial services?
AF: The banks needed to be more transparent. People would go to Financial Wisdom or Meridian Wealth and think they were getting independent advice. But the approved product list was stacked towards the parent institution, so it was deceptive. If you go to Mercedes Benz, you know you’re buying a Mercedes Benz. You're not told, “I'm going to give you the best car that is suited to you.” If banks were more transparent about the products, it might work better.
GH: What were some of the shortcomings of the Royal Commission?
AF: One of them is a chapter in the book, about a new whistleblower who has come forward on NAB and its cosy relationship with its auditor. It's a global issue with the role of external auditors and their dual role as consultants and how independent they are. The ex-Chairman of ASIC is talking about the global decline in the quality of auditing. The Big Four auditing firms globally have been loss-leading on audit to get the lucrative consulting. It's causing problems when you look at the so-called independent reports by auditors on some big issues. Over the last decade, we estimate the Big Four audit firms were paid a billion dollars by the major banks.
The other thing I found disappointing with the Commission was that these issues are about the victims. People who've been ripped off, but the remediation schemes have all been different. Some have worked and some haven't. They've lacked transparency on the criteria they’re using. The Royal Commission could have delivered a ‘gold-plated template’, a roadmap to follow.
GH: Did the industry funds come off lightly?
AF: Yes, they did. While the Commission went for 12 months, they spent only two weeks on the $2.8 trillion super industry. The Productivity Commission Report showed huge problems with performance figures, multiple accounts and other things. And to spend only two weeks looking at retail funds then spend so much time on NAB was wrong. Day after day with one person. It was just crazy, and industry funds hardly got looked at.
GH: Are you aware of anything that the industry funds are vulnerable on?
AF: The Commission should have looked at the role of the unions and the issue of slush funds needs to be put to rest.
GH: One of the headlines from the Royal Commission was ‘charging fees to dead people’. It’s become a catchphrase. But if you think about the legal profession, the very people running the Royal Commission, they rely heavily on charging fees to dead people. That's what estates and wills are about. Why did nobody from the banks say a financial adviser has a lot of work to do on an estate of a dead person?
AF: Yes, it was a great headline, but far more important was the ‘fee for no service’ they were charging to the living. The fees to dead people was really a headline that the media got hold of. But behind the fees were some tricks, such as claiming it was administrative errors when in fact it was deliberate.
GH: What do you hope is the dominant message that readers will take from your book?
AF: To stand up and be heard, not sit in silence as people did for years. Just speak up on wrongdoing, because if you catch it early, it doesn't blow up into something really bad. For customers, speak up because it could be fixed instead of destroying your lives.
One other thing on independent financial advisers. There needs more capital behind them. At the moment, at least if you get ripped off by a bank, they have deep pockets. The small fly-by-nights, they don’t have enough capital, and that needs to be fixed by being part of a larger-capitalised group.
GH: That’s another example of the failure of large institutions to sell their advantages. Let's face it, on the fee for no service issue, it would not have been too difficult to offer services like monthly reporting and a mandated annual meeting with your clients. It would have saved billions in compensation.
AF: It seemed so lazy. Even with FoFA, they didn't want to send out a document for a once a year opt in. Was that really too arduous for them? They brought it on themselves and would not take the reforms on board. When Matthew Rowe and Mark Rantall of the FPA (Financial Planning Association) said enough is enough, they were poorly treated by CBA.
GH: There are parts of the book where you describe an event but don’t name the person involved. Why was that?
AF: I took the names out in places. I didn’t think it added to the story, but people know who they are.
Graham Hand is Managing Editor of Cuffelinks. Adele Ferguson's book, ‘Banking Bad’, is available now.